For every construction company, project cost control management can get one of the toughest jobs to handle. The primary challenge in this context relates to budget overruns. No matter how diligent you are, this is a harsh reality that almost every construction business has to face at some point in time. And the chances are that you will be experiencing it more often than you expect. It seems feasible to be ready with a strategic plan that helps you deal with the challenge when you come across a situation like this one.
Here are some measures you can implement to address overruns and manage project costs more effectively.
Pinpoint the reason for the overrun
First things first, you need to identify the root of the issue to come up with an effective solution. There are various reasons why expenses exceed the planned budget and they may differ from project to project. These range from underestimated or incorrect calculations, scope creep, feeble resource utilisation, poor cost control and management, long-term economic impact and time overruns. There may be a single reason for the overrun or the cost may go overboard due to a combination of two or more of these factors. Whatever the situation may be, clarity about the real reasons for cost overrun can make all the difference when it comes to effective planning for addressing these concerns.
Create a plan of action
Once you know what is causing the budget overrun for your project, it is time to create an action plan so that you can get things back on track. The best way to accomplish it is by focusing on the problem, thinking about an effective plan and implementing it immediately. A clear and well-defined plan definitely serves as an asset for your team because it gives them the right direction and roadmap. Moreover, proper planning helps you nail the best possible way to deal with a problem and saves you time and money in the long run.
Be responsive to clients and subcontractors
Communicating with your clients and subcontractors may not be on top of your mind when things are off track. It could happen because of the apprehensions regarding their reaction or simply because you foresee a dispute. But not talking to them may make things even worse for you. However, being responsive and honest can actually foster trust and strengthen relationships in the long run.
Keep things transparent with your team
Apart from being honest and truthful with clients and subcontractors, you need to follow the same approach with the team as well. Trying to save them from the bad news is not a great idea. You may have all the good intentions to keep them motivated and save your value, but this mindset will do more harm than good. Rather, involving your team can help you gain trust and you may even get some unique ideas from them. With clear communication, they will also be able to understand the priorities and concentrate on the key aspects.
Try to get hold of the budget again
Besides planning and implementation of cost controls, you need to go the extra mile to get hold of the budget at this stage. When costs run over, stopping scope creeping is the first step to regain control. Managing and tracking the change orders should be your top priority. Convey clearly that you won’t do anything without clear and written permission from the stakeholders. Another effective measure to regain the additional budget is by negotiating better pricing for materials, labour and works. Look for renegotiating contracts with subcontractors to save up. Still, the advice is to avoid being too greedy because you wouldn’t want to ruin the relationship with the parties. Winning with a long-term strategy is all about maintaining fair pricing and strong relations with clients and subcontractors.
Pause when payments get delayed
Another effective measure for dealing with cost overruns is by being on top of your payment schedules. If your customer seems to delay payments, stop the work- immediately and try to find out the reason for delays. This is something you should take seriously because consistent delays can impact multiple projects and the business as a whole. If you continue investing in a dicey project, you may end up risking a lot. Things could get dangerous if the client happens to go bankrupt or even stops the project at a later stage. It is best to pause when you are at minimum risk.
Have a project cost control system in place
When it comes to minimizing the chances of overruns, having a project cost management system in place is vital. And if you face the situation more often than not, it is best to invest in cost control management software to empower your construction business in the long run. Look for one with features covering aspects like cashflow management, budget vs actuals, change orders, subcontractor agreements and more. Further, you should be able to leverage it for operating real-time data and controlling key indicators, such as cost forecasts, profits and completion percentage. Cost management system offers extensive benefits, from helping you track your expenses, save time and have more control on the project.
Success in the construction domain greatly depends on two factors, namely timelines and costs. These can be real challenges as well. When it comes to real projects, cost overruns are most likely to happen despite seamless planning and the best efforts. The key is to learn from your mistakes and making extra efforts not to repeat them ahead. You can even learn from your successes because they clarify everything that you have done right and should implement in future projects too. Focus on continuous improvement and follow the aforementioned measures to cut down the risks for the budget overrun to the minimum. You will surely be able to do it!